Poland said on Wednesday it will transfer to the state many of the assets held by private pension funds, slashing public debt but putting in doubt the future of the multi-billion-euro funds, many of them foreign-owned.

The changes went deeper than many in the market expected and could fuel investor concerns that the government is ditching some business-friendly policies to try to improve its flagging popularity with voters.

The Polish pension funds' organisation said the changes may be unconstitutional because the government is taking private assets away from them without offering any compensation.

Announcing the long-awaited overhaul of state-guaranteed pensions, Prime Minister Donald Tusk said private funds within the state-guaranteed system would have their bond holdings transferred to a state pension vehicle, but keep their equity holdings.

He said that what remained in citizens' pension pots in the private funds will be gradually transferred into the state vehicle over the last 10 years before savers hit retirement age.

The reform is "a decimation of the ...(private pension fund) system to open up fiscal space for an easier life now for the government," said Peter Attard Montalto of Nomura. "The government has an odd definition of private property given it claims this is not nationalisation."

But why is Poland engaging in behavior that will ultimately be disastrous to future capital allocation in non-public pension funds (the type that can at least on paper generate some returns as opposed to "public" funds which are guaranteed to lose)? After all, this is a last ditch step which no rational person would engage in unless there were no other option. Simple: there were no other option, and the driver is the same reason the world everywhere else is broke too -too much debt.

By shifting some assets from the private funds into ZUS, the government can book those assets on the state balance sheet to offset public debt, giving it more scope to borrow and spend. Finance Minister Jacek Rostowski said the changes will reduce public debt by about eight percent of GDP. This in turn, he said, would allow the lowering of two thresholds that deter the government from allowing debt to raise over 50 percent, and then 55 percent, of GDP. Public debt last year stood at 52.7 percent of GDP, according to the government's own calculations.

To summarize:

Government has too much debt to issue more debt

Government nationalizes private pension funds making their debt holdings an "asset" and commingles with other public assets

Debt/GDP drops below threshold, government can issue more sovereign debt

And of course, once Poland borrows like a drunken sailor using the new window of opportunity, and maxes out its new and improved limits, it will have no choice but to confiscate more assets, and to make its balance sheet appear better, until one day, there is nothing left in the private sector to confiscate. At that point the limit itself will have to be legislated away, and Poland will simply continue borrowing until one day there are no foreign lenders willing to take the same risk as the nation's private pensioners. At that point, Poland, which is in the EU but still has the Zloty, can just go ahead and monetize its own debt by printing unlimited amounts of its currency.

Of course, we all know how that story ends.

US TBTF bailouts, Cyprus bank "bail-ins", Polish pension "overhauls" -- like a drowning swimmer, expect insolvent sovereign states to get more and more desperate in their tactics as they thrash around looking for some capital -- any captial! -- to stave off the inevitable reckoning.

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I've always maintained that confiscation in the modern age will not be in gold, it will be in pensions, because that's where the money is. [Images of Willie Sutton explaining that he robbed banks because "that's where the money is..."]

I think this is the model of the way forward here. In 2010 US pension funds had 9 trillion in assets. The Fed has another 3.5 trillion in bonds. Let's imagine half the pension funds are in bonds. That's 8 trillion total. A bond crisis occurs. Government response: The Poland Template!

Nationalize the Fed. Nationalize the US pension system - drop all beneficiaries into Social Security. Cancel the debt owned by the Fed. US Treasury now prints the money. Problem solved, debt chopped in half in one dramatic move.

Again, its not the gold they'll come after, that's "fighting the last war." There's just not enough of it to move the needle.

Again, its not the gold they'll come after, that's "fighting the last war." There's just not enough of it to move the needle.

Just my two cents.

I totally agree on all counts. When people ask me if I am worried about gold confiscation, I always say not yet.

There are richer mines to plunder first.

I would also include the nationalization of certain money-market assets – you know, replacing them with special Treasury bonds paying something princely, perhaps the same 3% that current special Treasury bonds pay...those would be the ones inhabiting the Social (in)Security """trust""" fund.

The government will go where the wealth is first.

By the time they have worked their way down the value list to gold, I doubt there will be much left of any assets in any form to hold safely.

The only thing missing is a nice wrapper for all of this. They'll confiscate the money and create individual accounts with the catchy name "Gray accounts." Half will be in government securities; the other half will be placed in the stock market. This will keep the vampires on Wall Street fed along with lowering the number on the (im)balance sheet enough that those who actually believe the CPI numbers will sing "happy days are here again."

. . . Nationalize the Fed. Nationalize the US pension system - drop all beneficiaries into Social Security. Cancel the debt owned by the Fed. US Treasury now prints the money. Problem solved, debt chopped in half in one dramatic move.

Again, its not the gold they'll come after, that's "fighting the last war." There's just not enough of it to move the needle.